Starbucks: Delivering Customer Service

Statement of the Problem

How can Starbucks increase customer satisfaction while growing at the same time?

Recommended Course of Action

After evaluating each alternative (Exhibit 2), we recommend that Starbucks invest $40 million per year to increase labor hours per store in order to solve the problem with the quality of service. Starbucks should also set up an internal strategic marketing team. This will allow Starbucks to have a proactive feedback of customer satisfaction and hence faster improvement. We also noticed that labor cost is high for Starbucks' North American operations. To keep labor cost at reasonable level, Starbucks should reduce waste in making drinks, keep consistency in drinks, and improving productivity. We recommend the company invest more money in automated espresso machines. Currently, sales of coffee beverages account for 77% of total sales, and therefore, we recommend Starbucks increase its sales on food items and whole-bean coffees, and develop non-retail sale channels, which do not require as much special training as making coffee beverages. We also suggest Starbucks capture the new customer base to be its second permanent loyal segment.

Rationale for the Proposed Actions

Due to an increase in number of Starbucks' customers and highly customized drink demand, the workload per worker is very high. This fact results in a decrease in service time and conversation between Starbucks baristas and the customer, and more stress on baristas. Moreover, the research found that a large number of customers emphasize that "treated as a valuable customer", "friendly staff" and "fast service" are the most important factors in creating customer satisfaction. Investing $40 million annually will help eliminate the problems of service time and customer satisfaction by reducing the bottleneck of labor time and increasing customer satisfaction at all levels. This, in turn, will generate a stream of additional revenues for the lifetime value of each customer with respect to his/her shifting from unsatisfied to satisfied and satisfied to highly satisfied status. According to financial analysis (Exhibit 3), the NPV of investment is $4,109.50 per store for one cycle of a customer's lifetime. However, the predicted incremental profit is $12,644.76 per store per one customer lifetime, assuming that the investment will satisfy all the customers' complaints associated with the service time. We believe that spending the $40 million will not only improve Starbucks' services, but also increase customer satisfaction, which in turn, will increase its revenues.

Starbucks' newer customers tend to be younger, less educated, and in a lower income bracket. They view the Starbucks brand very differently from the existing loyal customers. Younger consumers are not yet loyal to the 'brand' and since they do not fit the general demographic of a typical Starbucks customer (willing to pay a premium price, know the importance of quality coffee), this presents a marketing opportunity for Starbucks to capture this additional market segment by stressing Starbucks' benefits over their low-priced competitors where the consumers normally buy coffee (gas stations, McDonalds). Starbucks should capture this new customer base to be their second permanent loyal segment via means of advertisements and promotional campaigns that emphasize on Starbucks' premium coffee and quality brand image. Using the quality emphasis will not only increase awareness of Starbucks' superior service and quality to all its customers, but also capture the 'new consumers' segment appropriately to make this the key reason they chose Starbucks versus lower price competitors.

Starbucks serves a wide range of beverages that take a relatively long time to make. We feel the company needs to reduce total number of steps to make beverages, and increase the number of beverages made by automatic machines. This will increase productivity and quality, while also reducing the total waiting time for the customers, as well as the workload of store employees. It is indeed important for Starbucks to keep a large variety of drinks, as this is one of their differentiating factors, and one that they score and focus well on.

Starbucks' strong distribution network will keep the company very competitive in the future. We strongly believe Starbucks should utilize its distribution network to expand sales to non-retail channels that have great growth potential. We also noticed that there are internal problems within Starbucks - specifically the lack of a strategic marketing group. The consumer retail business needs a strong marketing department to analyze market data and make strategic plans. It is crucial for Starbucks to streamline its marketing department. With its own marketing team, Starbucks can continuously understand their customer's needs and react quickly if necessary. The addition of a marketing team will also allow Starbucks to deploy a suitable strategy (if at all) to capture new customers in existing and new markets.

Starbucks has focused on various aspects in order to deliver excellent customer satisfaction. The key factor that they need to recognize is that they need to realize how they are serving their customer. Starbucks does have other factors that it ranks high in, but that is only part of the picture. Customer service is the key to Starbucks being recognized as the industry leader in gourmet coffee and coffee drinks for years to come.

Exhibit 1 Situational Analysis

Nature of Demand

o Lots of Americans drink coffee

o Many people want customizable drinks

o Going to Starbucks is an experience, not just a cup of coffee

o The aspect of customer service has strongly to do with the experience of the customer

o The myriad of drinks that could be made slowed down the customer focus

o Many places for Starbucks to grow to

o Direct link between customer satisfaction level and brand loyalty

o Established customers (1st visited 5+ years ago) - affluent, well-educated, white-collar (skewed female), age of 25-44.

o New customers - younger, less well-educated, lower in income.

o Customers tend to use the store the same way.

o Coffee consumption